- October 10, 2023
- Posted by: legaleseblogger
- Category: Related News
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Should I Sell or Continue Renting Out My House in North Carolina?
Introduction
I am currently residing in New York City but own a property in North Carolina that I rent out. The house was purchased in 2020 for $280,000 with a 2.8% interest rate. Initially, it was intended as a temporary residence, which we planned to rent out once we returned to NYC. However, the experience of being a landlord from a distance has proven to be quite challenging. Now, I am contemplating whether to sell the property or continue renting it out, considering the financial implications and potential future uncertainties.
Benefits of Owning and Renting Out the House
Initially, buying the house seemed like a smart investment. Its current value has appreciated significantly to $425,000, which showcases its potential for further growth. Renting it out at $2,200 per month also provides a steady source of income. Additionally, the property serves as a long-term investment, which can be sold in the future to fund the purchase of a condo in NYC.
Challenges Faced
Being a long-distance landlord has not been without its difficulties. The past tenant struggled to make regular rent payments and caused plumbing damage by flushing inappropriate items down the toilet. Despite finding new responsible tenants, maintenance issues persist. Recently, a plumbing backup led to $15,000 in damages, and the tenants had to be relocated for repairs to take place, costing an additional 2-3 weeks of accommodation expenses. These constant maintenance and repair requirements, coupled with living far away, make me question the feasibility of continuing to rent out the property.
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Future Plans: Sell or Continue Renting?
Given the current situation, deciding whether to sell the house or continue renting it out presents a significant dilemma. On one hand, the constant maintenance requirements, potential for future unforeseen problems, and the distance factor raise doubts about the viability of retaining the property. On the other hand, the property’s appreciating value and income from rent provide an enticing long-term investment opportunity.
Regardless, if the decision is made to sell the property in the coming year, reinvesting the cash into an index fund offers a potentially stable source of growth. This approach would allow for saving over a period of five years to eventually purchase a condo in NYC.
Seeking Advice and Alternative Perspectives
Being in such a predicament, I am interested in hearing from individuals who have faced similar circumstances. If you have encountered similar challenges or have insights to offer, I would greatly appreciate your input. Ultimately, the smartest move involves carefully evaluating the potential risks, benefits, and long-term goals before making a definitive decision regarding the property in question.
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This is exactly why I commonly recommend against people having individual rental properties. As you have experienced, a single bad tenant can make the whole experience a headache. I think a lot of people really underestimate the risk that comes with small-time real estate.
My advice? Sell the place, reap your profits, and put the money elsewhere.
Think of it this way. If you didn’t own the house, and someone gave you $140,000 in cash to invest, would you buy this house for $425,000 and put a mortgage on it so you can use it as a rental property (even assuming you could still get this low rate)? Would that be the best use of your money?
To me it is sort of a math problem. Depending on property tax rate you are not likely making that much money by renting (especially after you subtract management fees and maintenance). So why not sell now? How much do you expect to make by renting over 5 years? Maybe the property will continue to appreciate in value but maybe not if there is a recession, no one can predict. Overall, do the math and figure out if the potential $$$ is worth the headache?
How long ago did you move out? One thing to consider is the federal capital gains exemption as your primary residence. Depending on the timelines you *might* still be eligible. If you are still eligible it might be worth considering to sell.
https://www.irs.gov/taxtopics/tc701
Sell. This is a loosing bet, even if it were only worth what you paid for it. Ask yourself this, would you buy the house for 425k and rent it out for 2200 a month? I hope not.
I would take tax free gains while you can. It sounds like you lived in this property for two of the last five years while renovating and have been renting it sense? If so, I would sell it while you can still take the capital gains tax exemption as your primary residence and then roll the funds into a new investment.
YouÔÇÖre treating it like an investment, so treat it like an investment. Do the math and see what itÔÇÖs worth.
What are you receiving? YouÔÇÖre getting rent.
What are you paying? YouÔÇÖre paying the management fee. The mortgage payment is part expense, part not expense – the principal part is not expense. So if you pay $1000 mortgage and half is principal, then your expense is only $500. You also have to pay taxes/insurance if not included in the mortgage. You have to have an average repair budget built in – typically ballparked at 1.5% of the value of the property.
YouÔÇÖre also getting or paying any increases or decreases in the value of the place. WhatÔÇÖs your outlook on value changes? Is there more upside potential or downside risk? I would argue with a lot of real estate, the risk right now is to the downside.
Once you go through the calculations, are you earning enough on this rental in excess of the hurdle rate to justify the effort? What would an alternative investment earn you (for example if you sell and buy treasury bonds yielding 5%? Or invest in stocks expecting to earn 7%+)